U.S. ICT R&D Policy Report: The United States: ICT Leader or Laggard?

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TIA Innovation White Paper: U.S. ICT R&D Policy Report I. INTRODUCTION: Over the last several decades, the development of the ICT industry has made a positive impact on nearly every facet of the U.S. economy. Advances in telecommunications dramatically transform the way in which people live, work, learn, communicate and conduct business. Spanning every industry sector, ICT has a far-reaching multiplier effect throughout many specific industry sectors such as electric utilities, transportation, agriculture, health, financial services, machine building, distribution and retail to name a few. Numerous examples and studies demonstrate and document the degree to which the multiplier effect of ICT directly benefits other industries and the U.S. economy as a whole. In 2009, the ICT industry contributed $1 trillion to U.S. GDP, or 7.1% of GDP, including $600 billion from the sector itself and $400 billion in benefits to other sectors that rely on ICT. 1 The ICT sector’s direct contributions to GDP have increased 25% since the 1990’s, growing from 3.4 percent in 1991-1993 to 4.2 percent in 2005-2009, the highest gains of any industry sector. 2 The National Research Council found that the ICT industry accounted for 25 percent of U.S. economic growth from 1995 to 2007 measured as real change in GDP. 3 Over the last two decades, the development and use of ICT has accounted for as high as 60% of annual U.S. labor productivity gains. 4 From 1995 to 2005, use of ICT technologies were largely responsible for productivity in the U.S. growing by more than 3 percent per year (essentially twice the rate of the preceding 20 years), persisting through the recession of the early 2000’s when “productivity grew at the impressive—and counterintuitive—rate of 4.8 percent.” 5 The ICT industry is also an important source of high-paying jobs. In 2009, ICT firms accounted for 3,535,000 jobs with full-time employment compensation averaging $107,229, 80.6% higher than the national average. 6 On job creation, a mere 1% increase in broadband deployment has the potential to directly lead to the creation of as many as 300,000 new jobs, not including the jobs that would inevitably result from new access to broadband and the benefits it brings to all types of business. 7 The development and deployment of a public safety broadband network, specifically would lead to the creation of 100,000 new jobs and produce indirect benefits of up to $8 billion per year. 8 The U.S. economy benefits tremendously from the ICT industry, and there is significant potential moving forward for ICT to be a key economic driver to exit the recession and pave an innovation leadership position for the U.S. The magnitude of the positive impact of ICT on the broader U.S. economy as well as the amplitude of the ICT industry’s multiplier effect moving forward will be determined significantly by the federal government taking the necessary steps to buttress an historically unmatched, but now eroding U.S. ICT research ecosystem. The health of the ICT sector in the U.S., along with the other industry sectors that it benefits, depends on a healthy ICT research ecosystem. A primary reason for U.S. primacy in ICT innovation has been a strong, unparalleled research ecosystem consisting of robust university and industrial research institutions, emerging start-ups, mature technology companies, private financing, federal funding and a pool of talented researchers. Research is a key factor in enhancing innovative performance and productivity, as well as long-term economic growth. All sectors depend on and derive benefits from ICT research, which is precisely why the federal government should be alarmed by the poor state of federal funding for ICT research and demonstrate greater support for the sector. While the U.S. still boasts the strongest research ecosystem in the world, we are beginning to see signs of erosion as competing nations take strong steps to attract investment in ICT research and development to build innovation-based economies. The consequences for the ICT sector in the U.S. from a less competitive ICT research ecosystem are very real. The National Academy of Sciences observed, “The nation risks ceding IT leadership to other nations within a generation unless the United States recommits itself to providing the resources needed to fuel U.S. IT innovation.” 9 We have still not seen a strong enough commitment from the U.S. government to avoid that forecast. Overall, the U.S. share of global R&D spending continues to decline. 10 Federal investment in ICT funding remains relatively low compared to other scientific fields. Federal and industry R&D funding are critical and complementary components of the US ICT R&D ecosystem, with industry R&D primarily focused on applied research and federally-funded 2
TIA Innovation White Paper: U.S. ICT R&D Policy Report R&D providing a stable source of funding for basic research. Looking at R&D funding in the U.S. for all sectors combined, the federal government and industry provide 93% of all U.S. funding for R&D with industrial R&D activities accounting for approximately 70% of all R&D performed in the U.S. 11 Over the last five decades industrial R&D has increased significantly, but federal funding for research has not kept pace. From 1988 to 2008, industry investment in R&D increased over 140%, while federal investment has essentially remained flat increasing only 6.5% over a 20 year period. 12 This gap is significant given the federal government’s role in funding basic research. 200.00 150.00 100.00 50.00 0.00 US R&D by Funding Source Constant 2000 $billions 250.00 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Business Government Other Source: NSF National Patterns of R&D Expenditures Data 2008 This result is somewhat surprising given the fact that federally-funded research has led directly to breakthroughs that have spawned entire industries, creating new markets that have helped drive the U.S. economy. Nowhere have the benefits and return on investment of federal research dollars been more apparent than in the field of ICT. A small sample of the ICTs whose pedigree is directly linked to federally-funded research include: the Internet, web browsers, search engines, GPS, fiber optics, internet routers, data encryption standards, speech recognition and the mouse, to name a few. As impressive as ICT advances over the last several decades have been, greater opportunities lie ahead with potential to make significant advances in the field of ICT itself and in the more robust application of ICT in other sectors. The ability of the U.S. to lead and reap the benefits from the ICT innovations of the future will depend largely on the health of the U.S. ICT research ecosystem. This ecosystem will require sustained private and public funding in basic and applied research above current levels to successfully compete with other nations eager to attract R&D investment.. In terms of research funding, the two primary threats to the U.S. ICT research ecosystem are insufficient federal support for ICT R&D and correspondingly a growing gap in private and public investment in basic ICT research. If not addressed, competing ecosystems will attract R&D investment and the U.S. will cede leadership in the ICT sector. II. Current State of Federal Funding for ICT Research For years, when compared with other industries, ICT research has not been well supported in the U.S. Government’s federal budget. While the overall federal budget for science, which has increased significantly thanks to a commitment to the goals set out by the America COMPETES Act (PL 110-69) that included doubling the budget for the federal research agencies over 7 years, there is still a significant need for additional federal funding targeted for ICT research. Numerous voices, including PITAC, PCAST, the National Academy of Sciences, TIA and other groups have long expressed concerns over the level of federal support for ICT research. In 1999, PITAC described the level of federal investment in ICT research as “dangerously inadequate” and argued that federal investment in ICT research should be doubled over a period of 5 years. 13 In terms of percentage, the ICT research budget has increased, but the actual investment remains low in comparison to other industries and considering the needs of the ICT sector in the U.S. The National Academy of Sciences pointed out in a 2009 article that “not only does the federal investment in IT R&D included in “Math and Computer Science” (including ICT) pale in comparison with the investment in “Biomedical Sciences,” but it is smaller than the investment in “All Other Life Science,” “Engineering,” “Physical Sciences,” and “Environmental Science”—exceeding only the investment in “Psychology” and “Social Science.!” 14 The current level of federal focus on ICT research is insufficient to maintain U.S. leadership in the sector. 3
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U.S. ICT R&D Policy Report: The United States: ICT Leader or Laggard?

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